Builders might have to retaliate up to Rs. 20,000 crore in accordance with new accounting rules: (Industry insight)

A life-size wave is all set to bump on the realty builders. As per the wandering industry reports, the implementation of a new accounting standard from this fiscal (starting from 2018) will compel the listed real estate companies to write back profits, that have been consummated from all those projects under completion more than a year now.

This could be another socking line of attack to greet those real estate companies which have been reeling under insolvency code for the past few years or more. However, reports suggest that developers have already submitted their request in written to the government, seeking relief.

Conforming to the global industry standard, IND-AS 115 (new industry standard) mentions that all listed real estate companies will have to write back about Rs. 20,000 crore from their net profit of the current fiscal. The new industry standard started rolling since last April of this fiscal.

Real estate companies will have to run after their project completion with best of their efforts. They will have to switch to Project Completion Method from the existing Percentage Completion Method (POC).

Under the earlier regime, the booking amounts received from the home buyers for under construction projects, used to be shown as yearly turnover and the net income generated from those projects were regarded as gross profit by the builder companies.

Under the revised norm, the amount home buyers would pay towards an on-going project, would be treated as ‘advances’/ ‘loans’; but certainly not as income from sales. The developers have to write back the profit booked till date on all on-going projects that are not fully completed under the new norm.

A recent analytic report published by the ICICI Securities said, “This would happen in the first quarter on a retrospective basis and would lead to a hit on the net worth and lead to a temporary spike in companies’ debt-equity ratio.”

In a submission to the ministry of corporate affairs the National Real Estate Development Council (Naredco) said, “Any change from Percentage of Completion (POC) accounting to accounting on Completion of Project would have a very significant revenues and cost reversal as at the opening balance sheet and re-recognition of the same in ensuing period.”

This new industry standard is expected to impact on the credit rating part. Starting from the revenue generation to the net profit – every calculation will be under the finest institutional radar. This will not only have a direct outlook on the debt-equity ratio of the companies, but also restrict the borrowing capacity of the companies too.

Alike DLF and Lodha Group, many other leading real estate builders have kept their mum on this new industry standard and profit calculation part in amalgam.

“Real estate sector in India has been witnessing one after another massive changes during these past 3 years. Under these significant changes and stringent framework, there is no way a builder can escape from the ethics and the industry standards for his survival and sustenance, in the present market scenario. This change in particular, will definitely have a big bite on the revenue generation of the builders and also will give rise to higher tax outflow,” said Mr. Mahesh Somani, Chairman – National RERA Committee, National Association of Realtors, India.

-By LNN (Liyans News Network)

Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018: Home buyers will be acknowledged as tenable financial creditors.

June 6, 2018- a memorable day indeed from the home-buyers’ perspective. In its recent ordinance to amend the Insolvency and Bankruptcy Code (IBC), the Government of India has declared that henceforth home-buyers in ailing real estate companies would be recognized as financial creditors in the resolution process.

Corporate affairs secretary Injeti Srinivas confirmed that the ordinance would be one prime instrument for every single home-buyer to approach the National Company Law Tribunal to commence insolvency proceedings against a realtor. Based on the signed agreement between the buyer and the seller, if the real estate company goes under water, buyers will have to prove themselves as legitimate creditors in order to claim their rights as lenders.

The rules regarding buyers’ representation is soon to be published. As per the officials, there will be two agreements in some of the states in India; one for the land and the other for the house.

An official statement said: “The Ordinance comes as a significant relief to home buyers by recognizing their status as financial creditors. This would give them due representation in the CoC and make them an integral part of the decision-making process.”

Asking about the impact of this ordinance on the business of reality esp. on the home-buyers, the Chairman – National RERA Committee, National Association of Realtors, India, Mr. Mahesh Somani said, “This is undoubtedly a great move by the government to boost the morality of the home-buyers. Over the years buyers have been hackled by the realty stake holders in terms of deliverance and quality assurance. This one recognition will set them on a par with the banks during the proceedings.”

“Projects like Jaypee, Amrapali and many more that have reeling under the insolvency proceedings, with this secured financial creditor tag, respective home-buyers can now claim their interest during the resolution process and banks will ensure that in no way it would be compromised,” –  added Mr. Somani.

-By LNN (Liyans News Network)

Plagiarism acquisition against WB HIRA: Has Mamata Banerjee Govt. went on cloning central’s blueprint?

So far a lot has been said about the Real Estate (Regulation and Development) Act, 2016 (RERA). But still what remains untold is Bengal Government’s final take on this consumer-friendly Act.

The earlier speculations indicated that West Bengal Govt. might introduce the Housing Industry Regulation Act (HIRA) by the end of 2017. Around so much buildup stories, finally West Bengal Govt. has chosen to boycott the Act and decided to bring in its own set of law after two long years.

RERA came into action primarily to safeguard buyers’ interest and to save the country’s economy from the major harm caused by unregulated and unaccounted cash circulation from the second highest GDP contributing sector- Real Estate. The Act also was made to have a close track on the integrity parameter of the stakeholders.

Additionally, the recent amendment of the Insolvency and Bankruptcy Code (IBC) has further reinforced buyers’ authority and placed them on the same page with institutional leaders, in case the builder seeks for insolvency.

Still, many of the state governments have chosen to stand by the age-old seller- centric infrastructure, where builders used to have the lead role.

The central Act permitted states to tweak the paraphernalia barring the key provisions of the Act. Where most of the states have already established the Act, prioritizing the buyers’ protection fact; Bengal Govt. has chosen to start it from the beginning.

Yet, the state version of RERA is nothing but an inclusion of a few small, symmetrical changes in the central’s Act and it has left the builder’s body satisfied.

A couple of mention-worthy inclusions are:

  • State government holds the authority to declare under what condition/ which circumstances builders fail to deliver the projects on time.
  • West Bengal builders can use an open space inside the housing society for building flats or even they can sell it as parking lots without any institutional go-ahead.

“Government’s decision comes from an in-depth R&D. Undoubtedly, state builders will be benefited under this regime; but it would be interesting to see how the Act watches over the buyers’ interest,”- says Mahesh Somani, Chairman – National RERA Committee, National Association of Realtors, India.

-By LNN (Liyans News Network)

Taxability On Real Estate And Under-Construction Property Under GST

“Applicable GST rate” is where the confusion of the property buyers cut loose. There’s nothing to get panicked if you have the right amount of knowledge of GST levied on the construction sector. The unified tax regime, GST replaces the earlier service charges, cess, VAT and other indirect taxes. Basically, you will have to pay a single tax on your purchase.

In order to remove the applicable GST rate on real estate, the Central Board of Excise and Customs (CBEC) has recently issued a clarification regarding the applicability of GST on ready-to-move and under-construction projects.

“The simplified tax policy will benefit the industry in a long run. It will squeeze the profit margin of the developers and it will put stop to the inconvenient practice of multiple taxations which used to result in an artificially jacked-up project price,”- said, Mr. Mahesh Somani, Chairman- National RERA Committee, National Association of Realtors India (NAR-INDIA).

GST rate on ready-to-move projects– These projects are exempted from GST purview. It’s neither considered as goods nor services. Worthwhile mentioning, projects those have received the completion certificate before giving out the possession will also be considered as ready-to-move projects and thereby not inviting GST.

There is no need of paying GST on those projects for which you already paid the full sale amount before the date of GST implementation (July 1, 2017). But such transaction will attract a service tax of 4.5% under the erstwhile regime. Resale projects will also be considered as ready-to-move ones; GST will not be applicable in such transactions.

In case the buyer has paid a part of the sale amount before GST implementation, he will have to pay GST separately.

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GST on under-construction projects– The effective GST rate on under-construction projects or undivided share of land is 12% with full input tax credit. However, the original GST rate on under-construction projects is 18% but one-third of this 18% is deemed as the value of land or undivided share of land supplied to the buyer of the property.

GST on PMAY affordable housing purchased under Credit-linked Subsidy Scheme- Effective from January 25, 2018, any purchased property under CLSS scheme will attract 12% of GST and the effective rate will be of 8% after deducting one-third of the amount charged for the value of the land.

 

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It’s Time For The Youth-Driven Real Estate Market

Being a developing country India currently has rapidly evolving and increasingly competitive market offerings. Thus the career options of the Indian millennial are no longer predictable as it was as straightforward as it was for their parents. Alike the prevalent sectors real estate sector too is influenced by the choice and preferences of the millennial. According to the estimation, the young working population is of 46% of the total workforce of India which means approx 400 million working professionals of our country falls into the category of 20-30 age group.

Mostly, Indian young professionals prefer to rent rather than buying a home. This the main reason which is why the rental market across the prime cities in India is higher scoring than that of the primary real estate market. However, a typical millennial family of today is essentially nuclear for the requirement for compact homes equipped with modern amenities holds the greater market demand. However, the millennial have emerged as the user-base of the country. Accordingly, the investment behaviour and the market appetite are also changing in a tandem.
“Buying a home has been one of the prime requirements of all the time. It’s certainly one of the major financial accomplishments for any individuals. But for the generation of the 21st century, the perennial lifestyle requirements are the cyclical roadblocks for buying their own homes,”-said, Mr Mahesh Somani, Chairman- National RERA Committee, Head- East Zone, National Association of Realtors India (NAR).

Along with the career choice, millennial are experimental with their choice of properties too. For a nuclear family or even for dual-income household social surroundings has the bigger role-play than the size of the apartment. Here are some important facts that have been majorly considered while buying a home
• Gated housing society with modern day amenities and security measure.
• Distance from the residential place to the workplace and enhanced public transport connectivity.
• Technologically- enabled smart home features and internet connectivity.
• Environmental sustainability of the project.
• Value for money. All-inclusive lifestyle features at a competitive rate.

As we can see that the parameters of choosing a property for the investment of the generation are different from their forebears. Still, the basic idea of buying a home is just the same as it used to be which is stability and setting down and here we have no exception by the age-group or the nature of the investment.

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